Monday, December 12, 2011

David Walker is a Name-to-Know in the battle for governmental financial responsibility. He knows what he's talking about. He was head of the US General Accounting Office under both Clinton and W before he left to fight deficits full-time at the Peter G Peterson Foundation. Now he's pursuing the same mission leading the Comeback America Initiative.

If you've seen the movie IOUSA, you've seen David Walker in action. If you haven't check it out.

Take his Fiscal IQ quiz then read his explanation at the end. Don't worry about your score. Think of it as an exploratory mission, not a mission of conquest.

Also, he's attempting to forge a bi-partisan coalition. To do that, each side has to see him as hitting the other side with at least as much pain as they think they are taking.

And remember that a point or two he presents as fact are actually opinions. I was tweeked a bit along the way, but hey, I'm an adult...one who believes in freedom of expression. So I didn't get all bent out of shape even though I disagree with a point or two.

His goal is deficit reduction, almost whatever it takes to get there. That might be different than you or I. That's OK.

Wednesday, December 7, 2011

Theo Vermaelen, a professor of the elite French University Insead, illustrates a central point regarding government and human nature.

Incentives matter. For politicians, too. He says we should pay them for fiscal discipline.

His plan is to compensate politicians with bonds issued by the countries they rule. Then they bear the risk of their actions in the form of actual, real financial losses.

Professor Vermaelen writes that this "could be used to provide a counterweight to politicians' tendency to buy votes with other people's money". Does that sound Tea Party-ish to you? It does to me.

His sentiments are a reaction to what insurers refer to as moral hazard. Politicians are inclined to take more risk with taxpayer money because spending increases their pleasure (chances of re-election) more than the pain of the bills they incur. After all the bills could be pushed into the future seemingly forever.

Professor Vermaelen's comments trigger a second thought, this one a mere synaptic stroll: politicians often do not represent their constituents well. Economists refer to this as the agency problem.

People (taxpayers or stockholders) may think they've hired an agent (politicians or management) to carry out their instructions faithfully. But the agent has his or her own personal goals that often conflict with their employer. Those personal goals get in the way. Hence, in the political case, runaway spending results.

And this leads to a third closely related point: government has its own economic interests separate from its citizens. When those interests are not perfectly aligned, government pursues its objectives first. Citizens are treated as neglectable supplicants.